Volume 1,
Issue 1,
2007

After three years of working on the concept of a new academic journal, it is with pride that we at the Faculty of Economic and Financial Sciences at the University of Johannesburg present you with the first issue of the Journal of Economic and Financial Sciences (JEF).

Fixed capital formation (investment) is an important but generally volatile component of aggregate spending. It is important in that it adds to the productive capacity of an economy. It is value-adding in the sense that it contributes to the growth potential of an economy, but it tends to be volatile as it entails substantial capital commitments based on uncertain expectations. The article undertakes a comparative analysis of fixed capital expenditure, using 1994 as an important year in which South Africa entered a new political dispensation. The article will attempt to evaluate the extent to which fixed capital decisions responded to a changing economic and political environment in terms of expectations and uncertainty.

Generally Accepted Accounting Practice (GAAP), which comprises International Financial Reporting Standards (IFRSs), has been designed to apply to the general purpose financial statements of all profit-oriented entities, and especially those competing in the international capital markets. On the other hand, not-for-profit organisations exhibit unique characteristics, different from businesses. The nature of not-for-profit organizations means that GAAP (IFRS) is not applicable to them. Small and medium entities (SMEs) and governmental institutions also exhibit unique characteristics and specific accounting standards were developed to meet their specific needs. In South Africa there are no accounting standards that specifically apply to not-for-profit organisations and that take their specific reporting needs into account. This article examines whether GAAP is applicable to not-for-profit organisations, and whether its application adds value to these organisations. The article focuses on the nature of not-for-profit organisations and its impact on accounting standards, discusses the applicability of GAAP and highlights some problems experienced when applying GAAP.

The aim of the article is to introduce a project-management efficiency model in order to rank the dimensions of efficient project management in the public sector.

There is a need to develop and introduce measurement instruments that would enable decision-makers to prioritise the important dimensions of efficient project management. The results of the model will also demonstrate how project management acts as the primary function to enhance organisational performance, codified through improved logical endstate programmes, work ethics and process contributions.
The efficiency model/instrument that was developed can act as a tool to enable project managers to determine the important dimensions of efficient project management in their specific organisations.
A greater level of efficiency can be achieved if the organisation can work more efficiently and provide more effective services. The introduction of efficient project-management practices for an organisation is of the utmost importance in helping the organisation to fundamentally adapt to external threats to its existence and focus its endeavours in a coordinated manner.

Econometric models are often made up of assumptions that never truly match reality. One of the most challenged requirements is that the coefficients of econometric models remain constant over time, in the sense that it is assumed that the future will be similar to the past. If the assumption of constant coefficients is not satisfied, any conclusions reached from normal (constant coefficient) models will be biased. Another, very closely related, contested assumption is that the functional form (usually linear) of a model remains unchanged over time. The theory of linearity has long been the centre of all econometric model-building. According to Teräsvirta (1994), if linear estimates were not successful in practice, they would have been forsaken long ago, and this has certainly not been the case. Quite the opposite has been experienced: some very influential ideas based on the linear relationships between variables, like cointegration analysis, have been established. Nonetheless, there are definite situations in which linear models are unable to grasp the underlying economic theory of the data accurately. This article addresses the problem of non-linearity by applying smooth transition autoregressive (STAR) specifications to an existing simultaneous macroeconomic model of the South African economy. The results support the view that non-linear models provide better forecasts than linear specifications of equations.

A stylised fact of monetary policymaking is that central banks do not immediately respond to new information but seem instead to prefer to wait until sufficient 'evidence' to warrant a change has accumulated. However, theoretical models of inflation targeting imply that an optimising central bank should continuously respond to shocks. This article attempts to explain this stylised fact by introducing a small menu cost which is incurred every time the central bank changes the interest rate. It is shown that this produces a relatively large range of inaction because this cost will induce the central bank to take the option value of the status quo into account. In other words, because action is costly, the central bank will have an incentive to wait and see whether or not the economy will move closer to the inflation target of its own accord. Next, the article analyses the implications for the time series properties of interest rates. In particular, we examine the effect of the interest rate sensitivity of aggregate demand, the slope of the Lucas supply function and the variance of demand shocks on the size of the interest rate step and the expected length of the time period till the next interest rate step. Finally, we analyse the effect of menu costs on inflationary expectations. In this respect we find that the economy will suffer from an inflationary bias if the cost of raising the interest rate exceeds the cost of lowering it.